EBRI: Young 401(k) Participants Will Weather Market Dips

By Marcella De Simone|November 11, 2002 at 07:00 PM|Originally published on Lifehealthpro

X

Share with Email

sending now...

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

NU Online News Service, Nov. 11, 12:08 p.m. – When combined with Social Security payments, the 401(k) plan accumulations of employees contributing from their late 20s until retirement should provide sufficient income for the standard of living usually recommended by financial advisors, according to an Issue Brief published this month by the Employee Benefit Research Institute, Washington.

Jack VanDerhei, the Temple University business school faculty member who wrote the brief, looked at whether the plans will be an effective vehicle for retirement savings for employees retiring between 2035 and 2039.

“We took the worst three contiguous years, and still if you’ve been in a plan your entire career, you’ll still have a sizable replacement rate” for income received while working, VanDerhei says.

Even if stocks perform as poorly as they did during the worst 50-year period in the history of the stock market (1929-1978), 401(k) plan accumulations should still be significant, according to VanDerhei.

The only projected situation that causes accumulations to drop significantly is not having continued access to a 401(k) plan, VanDerhei says.

VanDerhei based his research on data on 2.5 million plan participants collected by EBRI and the Investment Company Institute, Washington.

EBRI and ICI project each participant’s income, contributions, withdrawals, loans and asset allocations from the end of 2000 until the participant retires. The model used for the projection assumes the plan participants would continue the contribution patterns observed today. VanDerhei’s brief focuses on participants who were in their late 20s at the end of 2000, who will turn 65 between 2035 and 2039.

Although these figures may seem at first glance to be improbable given reports that some plan participants have suffered losses in recent years, reports of major, widespread changes in participant behavior are “anecdotal,” VanDerhei says.

They likely concern employees “who very, very recently got into the system and may have had some setbacks.”

ThinkAdvisor

Free unlimited access to ThinkAdvisor.com which provides advisors, like you, with comprehensive coverage of the products, services and trends necessary to guide your clients in making critical wealth, health and life decisions.

Exclusive discounts on ALM and ThinkAdvisor events.

Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.